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Gifting at Christmas – How To Stay Tax Compliant

The Christmas period is upon us, and many businesses will be treating their staff to a fancy Christmas ‘do or maybe even a cash bonus! However, even though it’s Christmas, HMRC still have some rules which are applicable to gift giving. Below are the details of how to remain compliant so you don’t receive any nasty tax surprises.

Spending more than £50 per employee

If you’re buying your employees a nice gift that costs over £50 each (including delivery charges), this will be counted as a taxable perk for the employees who receive it, meaning they will be required to pay tax and the employer will also be required to pay National Insurance. So for example, if you end up buying a gift that costs £60, because of tax and NI, it will ultimately cost you £85.

Gifting your clients

Giving back to your clients is always a good way to show your appreciation, so just make sure your gift has clear advertisement of your business (this must be shown on the gift itself, not just the wrapping!) and make sure the gift isn’t alcohol, food, drink, tobacco or vouchers – unless these are products from your own business.

Certain gifts, such as non-promotional items or larger gifts are not tax-deductible as an expense as they are classed as entertaining.

VAT on gifts

You’re able to reclaim VAT incurred whilst purchasing a gift so long as you are not using the Flat Rate Scheme. However, if the recipient has received gifts of more than £50 in a year, you may have to account for VAT on the value of these.

If a gift is an exempt or zero-rated item, you will not have to account for VAT on these.

Cash Bonuses

If you choose to give your employees a Christmas cash bonus, these will count as earnings so you will be required to add the value to your employee’s other earnings and you will also have to deduct and pay PAYE tax and Class 1 NI through your payroll.

A £50 treat to yourself and your staff

If you’re a limited company, you can give a gift to your employees and even yourself! However gifts to employees are not a tax-deductible business expense. The limit for gifts is £50, and this will count as a trivial benefit exemption, meaning no Tax or NI needs to be paid – bear in mind this does not apply to cash, it must be a gift.

Non-cash vouchers up to £50 may be exempt under the trivial benefit rules, however when the voucher exceeds £50 this must be reported on a P11D form to HMRC.

Christmas Parties (virtual or in person)

Whilst we’re still in the midst of the pandemic, HRMC now allows a £150 allowance per employee for both virtual and in person Christmas parties. This allowance includes the cost of food, drinks, accommodation, transport, online entertainment & postage costs (for virtual parties).

Salary Sacrifice Arrangements

If you have employees who are part of a salary sacrifice arrangement, you are required to let them know how much social functions and parties are worth.

Whilst giving your employees a Christmas gift is a great idea – there’s always other things you can do for them to show some Christmas spirit and your appreciation. For example you could always give your staff an extra day off during the Christmas period for them to spend with their loved ones, or perhaps you could arrange a team building day to help increase morale!

For more information on tax and keeping compliant, get in touch with our team of experts at hello@bkplus.co.uk